Introduction
Accessing financing remains one of the biggest challenges for small and medium-sized enterprises (SMEs). Lengthy processes, difficult-to-meet requirements, and high interest rates turn the process into a nightmare. Octavio de la Torre, president of Concanaco Servytur, quips, “Mexico is designed to lend to those who don’t need it.” The reality for SMEs is a horror story when seeking financing, with long processes, lost paperwork, and the necessity to pledge immovable property as collateral without guarantee of approval.
The Credit Crisis Among SMEs
Lack of credit is one of the primary reasons for business failure, according to 21% of businesses, as reported by the Association of Entrepreneurs of Mexico. Another hindrance to growth is insufficient liquidity, noted by 26.5% of entrepreneurs.
Plan México’s Goal for SMEs
One of President Claudia Sheinbaum’s Plan México objectives is for 30% of micro, small, and medium enterprises (MSMIs) to have access to formal financing by 2030. However, changes are required to make credit more accessible.
Long Wait for Financing Amidst Long Supplier Payments
Mercedes Baltazar Lobato, founder of the public relations agency Meraki, faced this challenge when a large client presented an opportunity she couldn’t miss. However, the payment term was 120 days, often extending to 240 days, creating an operational hurdle. To bridge the liquidity gap, Mercedes sought a business credit from a financial institution, believing it would be easier with her existing business card. After eight months of a tedious process and losing crucial documents, the pandemic struck, and the bank deemed her a high-risk case, denying credit.
Sacrificing Payments to Survive
SME growth isn’t linear, and businesses often need to sacrifice payments to survive. Yunue Cárdenas of Mentalhising delayed tax payments to the Servicio de Administración Tributaria (SAT) to ensure employee payments. Despite approaching banks for credit, she couldn’t meet their stringent requirements, such as an annual turnover of five million pesos, nor could she provide collateral. She resorted to personal credit, which is easier to secure as an individual than a legal entity.
Barriers to Financing Stifle SME Growth
Montserrat and José Carlos, founders of El Chilaquil Relleno, started with 50,000 pesos borrowed from friends and family. Seeking bank financing for growth, they encountered numerous obstacles. Their Sociedad por Acciones Simplificada (SAS) status made it easier to establish a business, but it posed problems when applying for bank loans and even opening a business account.
What Needs to Change for SMEs to Access Credit?
In May, the federal government and banks signed an agreement to increase formal credit access for more MSMIs. To achieve the goal of 30% of SMEs having access to financing, entrepreneurs agree that processes need to be more flexible and that banks must truly understand businesses, as it’s easier to secure personal credit than business credit.
Mercedes Baltazar’s Perspective
Mercedes believes accessing bank credit should be simpler when the business account is with the same institution, as cash flow and repayment capacity are known. However, she notes that credit is still managed traditionally, often when a revolving line of credit is needed.
Octavio de la Torre’s Insight
Octavio highlights regulatory issues that hinder easy business credit granting, as physical visits are still required to verify business existence. Collaboration between the government and businesses is essential to overcome this barrier.
Key Questions and Answers
- What are the main challenges SMEs face when accessing credit? Long processes, difficult-to-meet requirements, and high interest rates make securing credit a nightmare for SMEs.
- How does lack of credit affect SMEs? Insufficient credit is a primary reason for business failure, and it also hinders SME growth due to cash flow issues.
- What is Plan México’s goal regarding SME credit access? The plan aims for 30% of MSMIs to have formal credit access by 2030.
- What challenges did Mercedes Baltazar face when seeking business credit? She encountered a lengthy, tedious process with lost documents and was ultimately denied credit due to high risk.
- How did Yunue Cárdenas navigate the lack of credit for Mentalhising? She sacrificed tax payments to ensure employee salaries and resorted to personal credit at high interest rates.
- What obstacles did Montserrat and José Carlos face when seeking bank financing for El Chilaquil Relleno? Their SAS status created problems when applying for bank loans and opening a business account.
- What changes are needed for better SME credit access? Processes should be more flexible, and banks must understand businesses better. Currently, regulatory issues hinder easy credit granting.
